Castle Street has successfully completed the acquisition of Selection Services Ltd, transforming the group into a leading managed IT services company, focused on UK mid-market enterprises. The £34.8m acquisition was funded via internal Castle Street funds and a £30m share placing at 30p. The UK mid-market IT managed services market is highly fragmented, including a high number of good quality but sub-scale businesses. We believe there is an opportunity to leverage Selection’s technical expertise by consolidating the market to produce a sophisticated service provider with the ability to deliver a full services offering, from owned data centre and network assets. Post the share placing the group has available cash resources of c.£16.5m, in addition to £9m of agreed debt facilities (plus £10m accordion), with which to pursue this strategy. At 30p the group trades on 9.2x Dec’16 EV/EBITDA, which we believe represents good value given the quality of the management team and wider opportunity to build a significant force in the UK mid-market IT services market.
